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Subject:  Re: Backdoor Roth or convert spouse's trad I Date:  3/26/2019  9:37 PM
Author:  joelcorley Number:  92709 of 102712


You wrote, On the other hand, DW's 401(k) documents do state that they allow in-service withdrawals of post-tax contributions after 3 years of service, potentially giving her the opportunity to do a mega-backdoor Roth in future years. My understanding is that those funds can be rolled directly to a Roth IRA, with no concern for the pro-rata rule?

Side question: Does DW's 401(k) offer in-plan conversions as well?

My employer (Microsoft) offers both. I understand that it's not uncommon for an employer that offers in-service distributions to also offer in-plan conversions. And her in-plan conversions might not be time-limited.

Still, if your DW has to make after-tax contributions for 3 years, you should be aware that it's possible to split the after-tax contributions from the earnings when you make the distribution. Both have to be distributed at the same time, but you are allowed to send the cost basis to a Roth IRA and the earnings to a Traditional IRA. This avoids any immediate tax liability, which could be substantial if she accumulates 3 year's worth of contributions.

And aj485 is right - the 401(k) after-tax to (mega-backdoor) Roth IRA option isn't affected by the prorata rule.

BTW, I max-out my after-tax contributions ($27,500/year) and use our in-plan conversion option. But I'm on a distribution list that discusses these things in-house and I know there are a number of other employees that do the Roth IRA distribution option. I also do a regular backdoor Roth IRA contribution as I've rolled my traditional IRA into my employer's plan.

<boasting> This year (including my employer match) I will shelter $77,000 from future taxes... </boasting>

- Joel
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